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By the end of 2013, Apple had $137 billion dollars in cash and marketable securities. This case explores how companies can generate such large amounts of cash and how and if they should distribute it to shareholders, especially in the face of shareholder pressure. In the process, students are asked to undertake fundamental financial analyses, including ratio analysis, a financial forecast, and a cash distribution analysis.

learning objective:

The case explores how companies generate large amounts of cash and how and if they should distribute it to shareholders, especially in the face of shareholder pressure. In the process, students are asked to undertake fundamental financial analyses. The analysis of this case has three parts: financial statement analysis, financial forecast, and cash distribution policy analysis. This case is designed for an introductory finance course and is appropriate for several levels: undergraduate, MBA, and executive education. It could fill many uses, such as an introductory case, a final exam, or a session on cash distribution policies.

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This is the student spreadsheet supplement to case 214-085, Financial Policy at Apple, 2013 (A).

learning objective:

The case explores how companies generate large amounts of cash and how and if they should distribute it to shareholders, especially in the face of shareholder pressure. In the process, students are asked to undertake fundamental financial analyses. The analysis of this case has three parts: financial statement analysis, financial forecast, and cash distribution policy analysis. This case is designed for an introductory finance course and is appropriate for several levels: undergraduate, MBA, and executive education. It could fill many uses, such as an introductory case, a final exam, or a session on cash distribution policies.

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Helps students to understand how the characteristics of a business are reflected in its financial statements. This case consists of an exercise in which students are given balance sheet data in percentage form and other selected financial data for companies in 14 industries. The specific task assigned to the student is to use the balance sheet data along with their basic knowledge of the operating conditions and characteristics of these 14 industries to match each industry to the correct data.

learning objective:

1. Familiarizes students with the components of balance sheets as well as typical financial ratios.<br />2. Pairing of industry names and profiles of financial data helps students draw tentative inferences of patterns of operations and assets structures in different industries.

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The U.S. corporate tax code is broken. High rates and perverse incentives drive capital away from the corporate sector and toward other uses and countries. This is bad news for U.S. workers, because corporations aren't making investments that would increase productivity and real wages. And while one might think higher rates lead to higher revenues, the U.S. actually collects less in taxes (as a percentage of GDP) than most other developed nations. Desai, a professor at Harvard Business School and Harvard Law, believes a handful of changes could fix all that. A significant rate reduction and an end to foreign-income tax would encourage U.S. multinationals to keep more money at home. Any revenue lost could be offset by a small tax on noncorporate business income, which is now exempted. Closing the chasm between how income is reported on taxes and earnings are reported to investors would also raise revenue--and end public perceptions of unfairness. These reforms could actually turn the U.S. tax system into an asset. But they won't be effective if managers don't change their mind-set. Rather than shirking their tax obligations, they need to start viewing them as an important social responsibility.

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The past three decades have seen American capitalism quietly transformed by a single, powerful idea--that financial markets are a suitable tool for measuring performance and structuring compensation. Stock instruments for managers, high-powered incentive contracts for investors, and the rise of alternative assets have dramatically altered the nature and level of incentives and rewards in our society, on both sides of the capital market. These changes have contributed significantly to the twin crises of modern American capitalism: repeated governance failures, which lead many to question the stewardship abilities of American managers and investors, and rising income inequality. When risk is repeatedly mispriced because investors enjoy skewed incentive schemes, financial capital is being misallocated. When managers undertake unwise investments or mergers in order to meet expectations that will trigger large compensation packages, real capital is being misallocated. And when relative compensation is as distorted as it has been by the financial-incentive bubble over the past several decades, one can only assume that human capital is being misallocated, to a disturbing degree. Awakening our monitors to their responsibilities and to the flaws of market-based compensation provides the best hope for correcting these imbalances and strengthening the U.S. economy for the challenges of this century.

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What price should Dow Chemical bid for PBB, a petrochemical complex that is being privatized by the Argentine government? To answer this question, students are forced to consider the role of country risk, the underlying currency exposure of the business, and how to value an investment opportunity that has several stages. Given that it is a privatization, students are also forced to consider the political dynamics involved, the incentives of local managers, and the bidding process of a privatization. The case provides detailed cash flows and discount rate information, allowing students to conduct a thorough valuation for an emerging markets project. To obtain executable spreadsheets (courseware), please contact our customer service department at custserv@hbsp.harvard.edu.

learning objective:

To examine valuation in emerging markets, country risk analysis, and multinational finance.

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As corporations go global, capital markets open up within them, giving companies a powerful mechanism for arbitrage across national financial markets. But in managing their internal markets to build an advantage, CFOs must balance the opportunities with the challenges of operating in multiple environments. By exploiting their internal capital markets, CFOs can create value in three functions: Financing. A CFO can reduce a group's tax bill by, for example, borrowing in countries with high tax rates and lending to operations in countries with lower rates. But the global CFO needs to be aware of the downsides of strategic financing. Saddling the managers of subsidiaries with debt, for instance, can cloud their profit performance. Risk management. Instead of managing currency exposures through the financial market, global firms can offset natural currency exposures through their worldwide operations. Doing so, however, can obscure the performance of local units, making it harder for headquarters to assess local managers and easier for financial managers to take purely speculative positions. Capital budgeting. CFOs can add value by getting smarter about valuing investment opportunities. But adopting an overly formal approach may tempt managers to game the system and can lead to an outcome at odds with the company's objectives. CFOs can help their global finance operations make the most of their opportunities by inventorying their capabilities and ensuring their adaptation to institutional variation and their alignment with organizational goals. To achieve this, a global finance function must locate decision making at a geographic level where other strategic decisions are made, rotate finance professionals through various institutional environments, and codify practices that can be adjusted to suit local conditions.

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Explores the concept of economic value added (EVA) and its practical applications as a management control system for performance measurement and incentive compensation. Explains how EVA is measured and explores some of the adjustments to financial statements that are required to measure EVA. Provides a fully worked example of a firm's measurement of its EVA, both before and after adjustments to its financial statements. Describes several types of EVA bonus schemes and discusses both the benefits and limitations of EVA.

learning objective:

To explain how EVA is measured, to explore EVA-based bonus schemes, and to examine the benefits and limitations of EVA.

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